The FAPL election may be desirable where the RAIFE of a CFA generates a FAPL that is not useful

Where a CFA has both RAIFE (i.e., interest and financing expenses that are deductible in computing its FAPI) and a FAPL for a particular taxation year, since the inclusion of the RAIFE in the taxpayer's IFE may seem inappropriate because the Canadian taxpayer (Canco) may never be able to use that FAPL, the election under s. s. 95(2)(f.11)(ii)(E) (the “FAPL election”) can generally be made to allow Canco to exclude an amount from the RAIFE of the foreign affiliate and reduce the FAPL of the foreign affiliate by the same amount.

Since s. 95(2)(f.11)(ii)(E) requires that the CFA’s FAPL and RAIFE be specified, a minor computation error may result in such FAPL election being invalid.

S. 95(2)(f.11)(ii)(E) is not prescribed under Reg 600, so that CRA is not explicitly authorized to accept a late filing of the election, although Onex (under appeal) indicated that CRA may be authorized under s. 220(2.1) or (3) to accept a late filed election not listed in Reg 600.

A simple example of a situation where the FAPL election would likely be helpful (even though the foreign affiliate group is seemingly “active”) is that of Canco wholly-owning FA Holdco, which wholly-owns FA Opco, where FA Holdco generates a FAPL as a result of third-party debt. Assuming that Canco would benefit from having additional interest-deduction capacity and that FA Holdco is not expected to generate future FAPI, it would generally be advantageous for Canco to make the FAPL election so as to reduce this FAPL by the RAIFE which otherwise would increase the IFE (i.e., non-deductible interest) of Canco.

Neal Armstrong. Summary of Eivan Sulaiman, “EIFEL’s FAPL Election,” International Tax Highlights, Vol. 4, No, 2, May 2025, p. 10 under s. 95(2)(f.11)(ii)(E).